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Lotus saved by Chinese firm Geely

Lotus, famous for F1 success decades ago and James Bond’s underwater Esprit - driven by the sadly departed Roger Moore - has been taken over by the Chinese firm Geely.

The Geely holding company, which owns the carmakers Geely, Volvo and the London Taxi Company, will take a 51% stake in the struggling sports car firm, and a 49% stake in Proton, which via DRB-Hicom owns Lotus.

Lotus is essentially two companies in one: a highly successful engineering consultancy firm which has great expertise in composites and lightweight materials, and a perennially loss-making sports car maker. Lotus made a loss of £28m in the 12 months ending on in March 2016, with sales down by 240 units to just over 1500 cars.

The attraction for Geely is Lotus' lightweight technology which Geely hopes to use so as to meet emissions targets in China and Europe and the ability to produce right-hand drive models for markets in South Asia, Australia and the UK.

Daniel Donghui Li, chief financial officer of Geely holdings, was today quoted in the FT stating that "reflecting our experience accumulated through Volvo Car's revitalisation, we also aim to unleash the full potential of Lotus Cars and bring it into a new phase of development by expanding and accelerating the rolling out of new products and technologies."

It's another step on the road towards internationalisation for Geely which aims to produce some 3m cars across all of its brands by 2020. Geely will use Proton's manufacturing operations in Malaysia to try to enter new Asian markets. Proton is well known in Asia and could also offer new marketing routes for the firm.

Meanwhile, Proton itself has been struggling of late and didn't have the resources or technology to back Lotus. Last year Proton made just 150,000 cars - around what MG Rover was making in its end days - and was suffering declining market share in its home market. It was bailed out to the tune of £280m last year by the Malaysian government which told it to find an overseas partner, so as to expand its range of products and improve the quality of its cars.

Lotus has been losing money for years. Its CEO Jean-Marc Gales went 'back to basics' when he took over in 2014, axing expensive R&D programmes and concentrating on making its core products lighter and faster. The firm cut losses to £27m last year.

It cars were in effect barred from sale in the US in 2015 when they failed to meet safety regulations, but have since returned. Its Evora 400 model was unveiled at Geneva in March with a price tag of £75K in the UK.

Despite its motor-racing pedigree, Lotus has struggled over many years to transform on-track brand heritage into on-road commercial success. While owners like GM and Proton have come and gone, one thing has remained pretty constant: Lotus is a perennially loss-making car company.

The real issue is that developing a genuinely new car costs several hundred million pounds. Lotus has neither the volume to generate cash for R&D nor the prestige to charge high prices.

Not surprisingly, of late Lotus has been focusing on enhancing its current range rather than developing new models. That's OK for so long but can't continue in the medium term given that the underpinnings of its current range of cars go back to 1996.

The basic Elise starts at just £35,880, and its Exige comes in at £55,900. In total Lotus made only 1500 cars last year. In contrast Aston Martin made four times as many cars and is able to sell models for hundreds of thousands of pounds.

But even Aston can't do it on its own anymore and has got into a relationship with Daimler whereby Aston can access Mercedes AMG technology. That is helping to develop new models much more cheaply, and may over time lead to platform sharing.

Indeed, I expect over time for Aston to be acquired by Mercedes just as other premium car brands have been snapped up by bigger players (BMW has acquired Roll-Royce, VW now owns Bentley, Lamborghini and Porsche, and Tata of course owns Jaguar Land Rover).

And Lotus? The firm has urgently needed a tie-up with a big player that is willing to share technology so that Lotus can get its development costs down. Geely offers just that, and is great news for the firm.

Just one aspect of this could be the electric car technology that Geely is developing, for example via the London Taxi Company. I hope it's not too long before we see an electric Elise.

After all, the very first Tesla, the Roadster, used a lotus Elise body, and looked stunning.

This article was written by David Bailey, professor at Aston Business School.

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